Chicago-based V-Square Quantitative Management has launched a socially responsible global equity ETF with enhanced exposure to companies that are better positioned to benefit from the climate transition.
Mamadou-Abou Sarr (l), co-Founder and President; and Habib Moudachirou (r), co-Founder and CIO, V-Square Quantitative Management.
The V-Shares MSCI World ESG Materiality and Carbon Transition ETF (VMAT US) has been listed on Cboe BZX Exchange with an expense ratio of 0.39%.
The fund is linked to the MSCI World ESG Materiality and Carbon Transition Select Index which selects its constituents from the parent MSCI World universe of large and mid-cap stocks from 23 developed markets globally.
An initial business activity screen removes companies with operations linked to controversial weapons, unconventional oil & gas, thermal coal mining and power generation, and tobacco.
Violators of UN Global Compact principles as well as firms with significant stranded assets (assets that have suffered sizable devaluations due to the climate transition) are also ineligible for inclusion.
Each remaining company is then assigned an ESG score based on a framework established by the Sustainable Accounting Standards Board (SASB) that evaluates how well the firm is managing financially material ESG risks specific to its industry.
Companies are ranked within their GICS sector according to their ESG scores and the highest-ranked firms accounting for 40% of each sector’s total float-adjusted market capitalization are selected for index inclusion.
Constituents are initially weighted by float-adjusted market capitalization and then adjusted based on MSCI’s Low Carbon Transition (LCT) analysis. MSCI’s LCT scoring methodology reflects a company’s exposure to low carbon transition risk, carbon emissions, and fossil fuel reserves, as well as its exposure to opportunities including alternative energy and clean technology.
Generally, the methodology doubles the weight of clean technology companies offering solutions to speed up the climate transition. Companies with products (e.g. petrol-based automobile manufacturers) or operations (high-carbon-emitting steel production) that are detrimental to the transition will have their weights reduced by 25% and 50% respectively. Individual stock weights are capped at 10%.
As of the end of May, the index contained 570 constituents. Stocks from the US accounted for 60% of the total weight with the next-largest country exposures being the UK (7.0%), Japan (6.0%), and Canada (4.7%).
Information technology stocks made up nearly a quarter (21.5%) of the index’s sector allocation followed by financials (13.8%), health care (12.9%), consumer discretionary (11.8%), and industrials (9.6%).
Notable positions included Microsoft (11.6%), Tesla (4.7%), Amazon (4.1%), Procter & Gamble (1.7%), Nvidia (1.6%), and Intel (1.2%).
Mamadou-Abou Sarr, co-Founder and President of V-Square, commented: “We are thrilled to launch an ETF that focuses on the financial impacts of sustainability and accounting for current and potential exposure to climate change transition risks and opportunities. V-Square sought to provide investors with a thoughtful way to focus on financially material ESG issues and participate in opportunities associated with the low carbon transition.”
Habib Moudachirou, co-Founder and CIO of V-Square, added: “Investors increasingly recognize that material ESG matters may have a direct financial impact on companies’ balance sheets and investment portfolios as vectors of risks and opportunities. Yet, out of a plethora of ESG data, only a subset may have a direct financial impact on companies. VMAT focuses on financially material ESG issues to seek to drive better performance.”